S&P 500 Technical Analysis
The S&P 500 poked its head above the 50 Day EMA during trading on Wednesday, which of course is a minor victory. We saw a lot of noise between here and the 4000 level, so I think it does make a certain amount of sense that we would see a bit of hesitation. However, if we can break above the 4000 level, then I think it’s a clear shot to reach near the 4100 level.
Looking at this chart, if we were to turn around and fall below the 3900 level, that would be a very bad look indeed, suggesting that perhaps it was a false breakout. On the other hand, if we do rally I think we will continue to “climb the wall of worry” to the upside. Regardless, I think the only thing you can probably count on is a lot of noisy behavior, so position sizing will be crucial. This is a vicious short-covering rally, so it’ll be interesting to see how this plays out over the longer term.
Any breakdown at this point in time will probably have quite a bit of momentum because there is so much in the way of negative news. However, markets cannot go down forever, so this relief rally does make a certain amount of sense. Whether or not it is a sustainable rally is a completely different question, therefore I think we have a situation where we have to look at this through the prism of the longer-term probabilities, which still point to lower pricing over the long term. The Federal Reserve has a meeting next week, so there is possible short covering due to that as well.
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This article was originally posted on FX Empire